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Sachin Khajuria

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70
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2022-12-05
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2022-12-05
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  1. “Curious to ask what your view is of, let's just say the mid-market, because a lot of these advantages you're espousing accrue to larger players, get more breadth, more scale, more resources, more information. What's your sense of the investment prospects of the larger mega caps with all these resources compared to, say, the market?”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  2. “That's what we found now that there's a handful of these firms that are able to look at information cut so many different ways, so many lenses. And as an LP, you can look at it and you can say, how amazing is it that some of these firms can have a flashcard or a CEO survey of sentiment, or they have the heat map of what's happening in each pocket of the industry ahead of what you read in the press. And so they can tell what's happening. And of course, they're not the only firms. I mean, investment banks would have this too for their clients and other things. But I think the perspective is a little bit different as a principle as opposed to an advisor. And so this, I think, is a huge information advantage because not only does it help you scout for new opportunities, it also helps you, I think, defend your existing investments better if you know what's coming down the road.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  3. “The third dimension I put to it is, of course, that even after you've sold a business, I think some of the best firms continue to monitor those industries, not necessarily that same business that they've just sold, but certainly that industry. So if they pop back into that industry at some point in time, it's not like the best they can look up is a deal from three, five years ago. They'll still have folks analyzing the significant trends in that industry long after that business has been exited. And where it really gets powerful, Ted, is when you add it all together. It's not one of these things. And when you add it all together and you combine it with size, so you're not just able to do the billion dollar deal, but you can also do the five or even ten billion dollar deal, then suddenly you get into a class of your own. You're like in, to use a soccer analogy, you're like in the Champions League of private equity.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  4. “And when you have that ability, that flexibility, I would say, to either look at multiple strategies on the same deal or involve people who sit above the wall, that also gives a different kind of learning and perspective”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  5. “Debt provider to the services aspect of that company in another fund, or maybe you have a social impact strategy that's investing in that too. So you can see that the more games you're in, the more information you're going to gather. So that's number one. The second dimension to it is, of course, many firms are very careful as they should be with information walls. But you are going to have opportunities where strategies can either work together because let's say they're tackling a complex situation that requires more than one fund to look at that strategy. Or you could have certain individuals that are above those information walls because they're particularly senior and they have to take a certain leadership view.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  6. “Was yes, their poor strategy worked out well, but they also diversified. They went into other things that they either knew and did more of, or they hired great talent from the outside to merge with their own culture and pursue a new set of strategies too, so they may have gone into life sciences or infrastructure or more credit. And the more products you have on offer, the more there's on the menu, the more you learn about the ingredients, the more you learn about the flavors, if you will. And so the more strategies you're running, the different kind of information you get, but also the different lens of information you get. You could be a supplier to a particular industry in your credit business, but in the equity of a competitor in your buyout business, you could be the infrastructure of a particular company in your real estate or infrastructure fund, and then you could be the”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  7. “Sure, it has multiple dimensions. So first let's look at not necessarily size but scope and scale. If you do one strategy, if you're a one trick pony, even if you're amazing at it, you're going to limit yourself in scale until you start to do other things. We've seen that. Go back to the beginning of my career. You had TPG, you had KKR, you had Apollo, you had Blackstone, you have so many amazing firms. Not all of them were the same size or had the same Kager twenty five years later. And so when you look at that, you see one of the reasons that some of the firms grew much more powerfully than others did.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  8. “Comment being, well, we're doing this, or we're going to make so much money, we're going to do this. And that did reveal to me, huh, you're basically bypassing the best bit of the firm and the culture to get the deal done. Now, fortunately, I must say extremely rare. Orsino equally, unfortunately, in both cases resulted in Very poor outcome in fact capital loss.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  9. “I'm not going to name names or firms, of course, and I've worked at several firms, so we shouldn't make assumptions where this is from. There's a deal at Investment Committee and a number of the partners are against it, because the data doesn't support the thesis, or at least there's enough doubt in the thesis that at the purchase price that's mooted, there's not enough room for error in that purchase price to be as wrong as one could reasonably be wrong, if that makes sense, unless there's like a Hail Mary solution that comes out from nowhere. But because of relationships of the partner or partners involved leading the deal, they get it through.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  10. “I'd love to hear an example of something you came across, whether it was somewhere you worked, somewhere you didn't work, someone on the other side of the table, where you saw something that was revealing of the opposite of what you just talked about, that they weren't doing things for the right reasons.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  11. “Like you can dismiss it, like culture, yeah, okay, whatever. But what I mean is it's really the day-to-day, Ted. It's the blocking and tackling. It's not the sixes they're hitting. It's not the home runs. It's the day-to-day are they really living the deal. And that comes from the folks at the top who've probably been around a long time or if they've been trained by the founders of these firms. They breathe it, really. That is what makes the two and twenty work. You can have the formula, but it doesn't mean you can actually make it work. And that's why I go to the fact that this is really a people business. There's nothing automated about it. There's nothing that a supercomputer can replicate. There's no ETF version of private equity or private markets more generally. It's a people business, and therefore you have to understand the traits and DNA of those people because it's those”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  12. “In a rising market, you're going to find all private equity firms or most good private equity firms doing well, whether you're looking at their buyout strategy, their credit strategy, infrastructure, real estate, and so on. It's when things get difficult that you start to see bifurcation, you start to see the tide going out, et cetera. And that's when the culture at the firms, which absolutely has to come from the top, is really witnessed. That's when they have to bear their teeth because things are difficult. It's not easy to just buy a company, put some debt on it, wait five years, make a double, and then move on, right? And I agree with you 100%. Most firms have 2 in 20 or some variation thereof. How come some can't beat the S&P whatever time frame you look at and some can. Some continue to provide 500 basis points, a thousand basis points above the S&P for a long, long periods of time. How is that? And it absolutely goes to the culture. And it's such an overused word.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  13. “You said there are only a few firms that really kind of get this right. You could look at the economics, you could look at the structure and firms generally have variations of a theme but the same economic structure as it relates to say alignment with their LPs so what is it about those few that get it right that differentiates the ones that don't quite get it right?”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  14. “And I think number three, and we talk a lot about this in the book, the best firms have temperament. They are very good at pivoting when they need to pivot, sticking when they need to stick, and really looking at the long term. It's not a trader mentality. It's not by low cell high. It's not like, oh, what's the hot piece of information we can trade on? It's nothing like that. It's very much like we could own this for 10 years or more. What is going to get us to the outcome we want? How do we recalibrate that outcome continuously? And how do we then reverse engineer into what we have to do today to be able to get to that outcome? And that takes temperament. That takes a sort of the ability to leap when there's chaos, the ability to freeze when you need to freeze. That takes a certain long-term perspective. So those three, I think, are the key things that I've come up with.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  15. “There's nothing to hide about that. But if it doesn't work out, they're not consultants. They're not just walking away. And the best firms, they're almost better on defense than they are on offense. So that's number one. Number two, the firms that have gained a certain critical mass, they have what I call in the book the library. They have an amazing network of data, executives, knowledge, know-how, and this gives them a fantastic edge even before you look at things like size and scale. They have great information, and they're able to capitalize on it. That's not something you can just replicate by hiring a bunch of folks. You could hire 20 smart investors from five different firms, but you wouldn't be able to replicate the knowledge base that's inside those firms. So that's number two.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  16. “Good firms that I've been involved with and I invest with now. They really do think like principles, not like advisors. They really are in it within alignment. And this is rare. It's easy to say it's very, very hard to do day in, day out, good deals, bad deals, return of capital, potential loss of capital, they really thinking about it as if they had all the money in the deal, as opposed to them having a fraction of money in the deal and most of the money coming from retirement systems, sovereign wealth funds, what have you. And so that alignment is really powerful when you see people really feel it, Ted. They really feel it, which is like, this is our deal. Or if it's a mess, this is our mess and we're going to clean it up. It really means that they're fighting for you. They're in your corner. Of course, they're making a great profit out of it if it works out. Of course.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  17. “Constructive because I believe in what I'm writing. So constructive but realistic. And the way I would describe it, Ted is trying to hold a mirror to the industry. What are the good things you see as we will look in the mirror, hopefully a few good things? Probably a lot of things that we wish were better, and maybe a couple of things that we wish just weren't there. And so when you look at it from that kind of lens, holding a mirror to the industry, much like the industry does when it looks at a target, looks at a company to invest in. It's not just looking at all the bad stuff or the good stuff. It's trying to get to the truth of what do we really see? Do we see a business that has strengths? What are they? What are the things that could be done better? What are the weaknesses? And is there anything drastically wrong that needs to change more urgently? What are the opportunities? And so I tried to look at the industry from that perspective, constructive but realistic.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  18. “As someone who is in the GPs, as well as an LP, and now, of course, an LP across multiple firms. And that's what led me to the idea of writing this book, which really should be for everybody who either has a pension or a retirement plan that may be going into private equity or may meet private equity in their business.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  19. “I'm an investor twenty five years as a partner at Apollo, I'm now limited partner at a number of firms managing my family office, and prior to that I spent a few years in investment banking at the start of my career, but mostly an investor for most of my life, and it struck me that a lot of my friends who are doing great in their own professions, medicine perhaps or academics or what have you, you know, started to invest as they progressed in their own careers for their retirement, for their life goals, and so on. And yet for some reason, they didn't really understand or have heard much about private equity, even if they came across it in a professional context. And so it occurred to me over the years we should try to get more people with a baseline level of understanding of private equity, not necessarily from an academic, technical point of view, and probably not even taking sides, but more about what is it really like on the inside.”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source

  20. “Guest on today's show is Sachin Kajuria, a former partner at Apollo and 25-year veteran of private equity who recently authored 2 and 20, a fantastic insider's account of the private equity industry. Our conversation covers Sachin's rationale for writing 2 and 20, the strengths of private equity, areas for improvement, and needs for change. We discussed the defining traits of the industry across the sourcing process, depth of research, use of operating executives, ability to pivot, and democratization of alternatives. We close by discussing opportunities and risks going forward and Sachin's application of his insights to investing at his family office. Before we get going, we're just two episodes away from the end of season one of private equity deals. If you're an allocator, private equity manager, banker, or a student of deals or businesses,”

    2022-12-05 · Capital Allocators · Sachin Khajuria – Two and Twenty, An Insider's Take on Private Equity (Capital Allocators, EP.285) · IDENTIFIED FROM THE TRANSCRIPT · source